What is VRS in retirement ?

What Is VRS (Voluntary Retirement Scheme) and Who Can Avail It?

VRS allows eligible employees early retirement with a financial package, ensuring a dignified exit and helping organisations manage their workforce.

Written by : Knowledge Centre Team

2026-07-07

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6 minutes read

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Today, you can choose to retire based on your own needs and aspirations. You may want to explore new interests, spend more time with your family, or launch something of your own. In India, the traditional retirement age is 58-60, but you might prefer to take charge and plan your future a little earlier.

That’s where the Voluntary Retirement Scheme (VRS) helps. To understand what is voluntary retirement, you must know that it is a well-designed scheme that allows you to retire voluntarily and provides financial benefits to support your next phase of life. If you are curious about VRS, follow the blog till the end.

Key Takeaways 

  • VRS allows you to retire early with financial benefits, giving you control over your exit and plans

  • Compensation is calculated using two methods, based on years of service or months left till retirement

  • Eligibility typically requires being 40 years old with at least 10 years of continuous service

  • Up to ₹5 lakh of your VRS payout is tax-exempt under Section 19 of the Income Tax Act 2025 (previously Section 10(10C) of the Income Tax Act 1961)

  • You can strengthen your financial future post-VRS with life insurance and retirement plans

Understanding the Voluntary Retirement Scheme 

The VRS full form is Voluntary Retirement Scheme. It is a programme that allows you to retire before the general retirement age. Generally, most employees retire in their late 50s or early 60s, but this scheme allows you to retire as early as your 40s. Companies offer VRS  for two primary reasons: Workforce Optimisation and Workforce Productivity. To qualify for the VRS, you must meet specific criteria:

  • You must be over 40 years of age and have completed a minimum of 10 years of continuous service with the company  

  • Once you opt for VRS, you cannot rejoin the same organisation or any entity under the same management group

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Features of the Voluntary Retirement Scheme

The Voluntary Retirement Scheme offers several features that ensure your early retirement feels rewarding and well-supported. 

  • Voluntary Nature: You choose VRS completely on your own. This gives you the freedom to make a decision that aligns with your personal and financial goals. The scheme is entirely optional and reflects your readiness to move on, not your employer’s demand.
  • Great Financial Assistance: When you opt for VRS, you receive more than just a lump sum. It usually includes benefits like your provident fund balance, gratuity, and sometimes even tax consultation. These financial components help you stay secure and make the transition to the next phase of life smoother.
  • Tax-Free Compensation: Under Section 19 Deductions from salaries of the Income Tax Act, 2025 (previously Section 10(10C) of the Income Tax Act, 1961), you can enjoy a tax exemption of up to ₹5 lakhs on your VRS payout. To benefit from this, make sure the payment is received within the same financial year. This helps you keep more of your money and plan your future wisely.
  • Non-Replacement: Once you leave through VRS, your role is not filled by a new hire. Organisations implement this rule to ensure that the scheme genuinely reduces workforce size rather than just reshuffling it. This condition also protects the integrity and intent behind offering VRS in the first place.
  • Fair Compensation: Your VRS package is calculated reasonably, usually based on your last drawn salary and total years of service. The longer you’ve worked, the higher your compensation is likely to be. This ensures you receive a respectable exit payout that reflects your contribution over the years.
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Disclaimer-

The above calculation and illustration of figures are indicative only and not on actual basis.

Benefits of the Voluntary Retirement Scheme 

If you’re considering voluntary retirement, it's important to understand how the scheme can benefit you. VRS offers financial support and an opportunity to realign your career or life goals. Here's how it works in your favour:

  • Respectful Way to Exit: Voluntary retirement allows you to leave your job with dignity and self-choice. Unlike layoffs, this scheme respects your years of service and ensures a smooth, planned exit. You won’t face sudden job loss or uncertainty, and you can prepare emotionally and financially for what’s next.
  • Clarity and Transparency: The process of voluntary retirement is legally structured and transparent. You’ll be informed about the eligibility, compensation, and timelines well in advance. It involves no pressure, giving you complete control to make an informed decision.
  • Helps You Secure a Financial Cushion: Under VRS, you receive compensation based on your years of service and last drawn salary. This package can serve as a financial buffer, giving you time to explore other career options, start a business, or simply take a break without immediate income pressure.
  • Training and Career Support: Some companies offer reskilling programmes and career counselling as part of VRS. If you want to shift to another industry, become self-employed, or update your skills, these resources can help you build a fresh career path.
  • Supports Your Mental Well-Being: After years of working under deadlines and pressure, VRS gives you a much-needed pause. It helps reduce stress by removing the burden of routine work life. You get the space to restore your mental well-being, improve your health, and reconnect with what brings you peace of mind.
Do you know

Did You Know?

VRS was widely adopted by Indian public sector banks in the early 2000s, with over 1.5 lakh employees opting for it in a single year
 

Source: TOI

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Eligibility Criteria for a Voluntary Retirement Scheme (VRS) 

To apply for the Voluntary Retirement Scheme (VRS), you need to meet certain eligibility conditions set by your organisation and in line with government regulations. Here’s what typically applies when it comes to VRS eligibility:

  • You must be at least 40 years old at the time of applying

  • You should have completed a minimum of 10 years of continuous service with the company

  • The scheme generally covers all employees, but directors of a company or a co-operative society are not eligible under VRS

  • Employees of public sector undertakings (PSUs) and companies with 100 or more workers are also covered under VRS as per the Industrial Disputes Act, 1947

Rules and Regulations of the Voluntary Retirement Scheme 

If you're planning to opt for the Voluntary Retirement Scheme (VRS), you must follow a few key rules and regulations.

  • No Rehiring for the Same Role: When you retire through VRS, the company cannot replace you by hiring someone else for your role. It’s also a known and effective workforce reduction strategy. The main purpose of this scheme is to reduce the overall headcount.
  • No Rejoining the Same Company or Affiliates: Once you take voluntary retirement, you cannot rejoin the same organisation, its management, or any sister concern. This rule ensures that the process remains genuine and is not misused. However, you are free to work with a different company or pursue other career opportunities.
  • Government Approval Required: Before implementing a VRS, the company must obtain approval from the appropriate government authority. This ensures the scheme complies with labour laws and is not used as a substitute for unlawful retrenchment.

How is the Voluntary Retirement Scheme Calculated?

When you opt for the Voluntary Retirement Scheme (VRS), your compensation is calculated based on your last drawn salary and either your years of service or the number of months left until retirement. The company can choose either method.

Method 1: Based on Years of Service

You get 45 days' salary for every completed year of service

Example:

  • Last monthly salary: ₹50,000

  • Years of service: 30

  • 45 days' salary = ₹50,000 × 45/26 = ₹86,538 per year (one month has 26 working days)

  • Calculation: ₹86,538 × 30 = ₹25,96,154

Method 2: Based on Remaining Service

You get your monthly salary multiplied by the number of months left until you turn 60.

Example:

  • Age: 50

  • Years left till 60: 10→ 10 × 12 = 120 months

  • Monthly salary: ₹50,000

  • Calculation: ₹50,000 × 120 = ₹60,00,000

Which Amount Do You Get?

The company compares the two methods and selects the amount at their disposal. Therefore, if they choose the higher amount, in this VRS calculation example, you will get ₹60,00,000.

Final Thoughts 

The Voluntary Retirement Scheme (VRS) gives you the power to step away from the daily grind on your terms. It offers financial stability, time to realign your goals, and the freedom to pursue what truly matters to you. To make the most of this transition, ensure you have a strong financial plan in place. Planning early and investing in the right instruments can help you build a retirement corpus that sustains your lifestyle long after your last working day.

Glossary

  1. Voluntary Retirement Scheme (VRS): A company-offered scheme allowing eligible employees to retire early with financial benefits
  2. Last Drawn Salary: The final monthly salary received by an employee before opting for voluntary retirement
  3. Gratuity: A lump sum amount paid by an employer to an employee for long-term service at the time of retirement or resignation
  4. Provident Fund: A government-backed retirement savings scheme contributed to by both the employee and the employer
  5. Workforce Optimisation: A strategy companies use to reduce headcount and improve operational efficiency
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FAQs

You are eligible if you are at least 40 years old and have completed 10 years of continuous service with your employer. Note that directors of a company or a co-operative society are not eligible under VRS.

It’s calculated using two methods, based on years of service or months left until retirement. You get whichever the company deems fit, as part of the maintenance of goodwill.

Not entirely. Only up to ₹5 lakh is tax-free under Section 19 of the Income Tax Act 2025 (previously Section 10(10C) of the Income Tax Act 1961).

Yes, you can work elsewhere, but not with the same company or its subsidiaries, as per standard VRS rules.

Absolutely. VRS does not affect your other retirement benefits, like the provident fund and gratuity.

A VRS retirement calculator is an online tool that estimates your VRS compensation based on inputs like your age, monthly salary, and years of service. It applies both standard calculation methods.

You must be at least 40 years old and have at least 10 years of continuous service. Post-VRS, your role cannot be filled by a new hire, and you cannot rejoin the same organisation or any affiliate. Your compensation of up to ₹5 lakh is also tax-exempt under Section 19 of the Income Tax Act 2025 (previously Section 10(10C) of the Income Tax Act 1961).

The same two standard methods apply: 45 days' salary per completed year of service, or monthly salary multiplied by months remaining until retirement. Private-sector companies may also offer additional benefits beyond the standard VRS calculation formula as part of their own VRS policy.

VRS is employee-initiated and comes with a structured financial package and tax benefits. Retrenchment is employer-initiated with no employee choice involved. VRS is governed under section 19 of the Income Tax Act 2025 (previously Section 10(10C) of the Income Tax Act 1961), while retrenchment falls under the Industrial Disputes Act, 1947.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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